Natural gas outlook: Energy imported from Canada to meet demand

Weather-related demand from hot temperatures over the past few days has led imports of natural gas from Canada to jump in the Northeast United States. On Wednesday, imports into the Northeast rose to their highest level since March, according to data from BENTEK Energy LLC (Bentek). Overall tightness in supply from high demand in the Northeast, which also faces pipeline infrastructure constraints, has led prices in New England to rise to above $8 per million British thermal units (MMBtu).

Although rising domestic production has made LNG and pipeline imports from Canada a smaller piece of the domestic supply picture, imports still play an important role, particularly in meeting incremental demand during times of extreme heat or cold. The jump in prices has also likely helped to attract Canadian pipeline gas to the Northeast. According to Bentek, LNG sendout from the Everett Terminal, located close to Boston, has fallen to zero in recent weeks, leaving Canadian gas as one of the few sources of incremental supply.

Prices:

The NYMEX began the week with all contracts through June 2014 registering double-digit increases on Thursday and remaining at higher levels throughout the balance of the report week (Wednesday to Wednesday). The July 2012 contract led the futures market increase with a 31 cent per MMBtu (14.2 percent) gain last Thursday and finished the week up 33.2 cents per MMBtu (15.2 percent), closing at $2.517 per MMBtu yesterday. The 3-Month Strip (average of July, August, and September contracts) followed suit with a 30 cent jump (13.6 percent) on Thursday and finished the week with a 31.8 cent per MMBtu (14.2 percent) gain to close at $2.552 per MMBtu yesterday. The gain in the 12-Month Strip (average of the July 2012 through June 2013 contracts) showed a similar, although not as strong, pattern, gaining 22 cents per MMBtu (7.8 percent) last Thursday and closing the week up 23.7 cents per MMBtu (8.4 percent) at $3.059 per MMBtu yesterday.

Movement in the Henry Hub day-ahead price reflected the overall increase in market prices across the country. Starting the week at $2.18 per MMBtu last Wednesday, it lagged the futures market increases by a day, gaining only 2 cents per MMBtu on Thursday. It subsequently jumped 24 cents per MMBtu on Friday, after which it continued to climb steadily, closing the week up 42 cents per MMBtu (19.3 percent) at $2.60 per MMBtu yesterday.

Nearly all downstream trading locations registered higher prices as consumption increased over the week. The Northeast, hit simultaneously with record-high temperatures, pipeline maintenance, and nuclear outages, saw prices at some locations more than triple. Spot prices at the Algonquin Citygate for delivery into Boston, which began the week at $2.50 per MMBtu, surged from $3.25 per MMBtu on Monday to $7.00 per MMBtu on Tuesday and finished the week up $6.37 per MMBTU (254.8 percent), closing at $8.87 per MMBtu yesterday. Spot prices at Transcontinental Pipeline’s Zone 6 trading point for delivery into New York City, which started the week at $2.33 per MMBtu, gained $1.78 per MMBtu over the week to close yesterday at $4.11 per MMBtu (up 76.4 percent). The Chicago citygate spot price was more in line with the Henry Hub price, registering a 45-cent per MMBtu price gain (from $2.20 per MMBtu last Wednesday) and ending the week at $2.65 per MMBtu (up 20.5 percent).

Total domestic consumption increased over the week, led by the Northeast. According to estimates from Bentek, domestic natural gas consumption increased by 2.3 percent from last week. The increase was attributed primarily to a 7.1 percent increase in natural gas consumption for power generation, with natural gas consumption in the industrial and residential/commercial sectors down 0.9 and 5.0 percent, respectively. With temperatures in the 100-degree range hitting parts of the Northeast on Tuesday and Wednesday, natural gas used for power burn in this region increased significantly, gaining 47.2 percent between Monday and yesterday. All regions of the country posted power burn increases over the reporting period, but the Northeast increase was by far the largest volumetrically.

Total supply was up slightly for the week, due to higher domestic dry gas production. According to Bentek estimates, the week’s average total natural gas supply increased by 1.0 percent from last week’s level, led by a 0.9 percent increase in dry gas production. Dry gas production averaged 63.9 Bcf per day, 3.9 percent above this time last year. Despite a 37.6 percent increase in imports from Canada into the Northeast, overall imports from Canada were down 1.0 percent for the week, averaging 6.0 Bcf per day over the period. Imports from Canada stand 28.2 percent above year-ago volumes for the same week. There was a 55.6 increase in liquefied natural gas (LNG) supply during the week, with sendout averaging 368 million cubic feet (MMcf) per day. Sendout volumes remain 62.4 percent below year-ago levels.

Storage

Working natural gas in storage increased to 3,006 Bcf as of Friday, June 15, according to EIA’s WNGSR. This represents an implied net injection of 62 Bcf from the previous week. This week’s injection was 25 Bcf below the 5-year (2007-2011) injection of 87 Bcf, and 28 Bcf below last year’s injection of 90 Bcf. Since April 27, injections of working natural gas into underground storage have fallen short of both year-ago levels and the 5-year average, although stocks remain well above historical levels. Inventories are currently 680 Bcf greater than last year at this time and 641 Bcf greater than the 5-year average.

Injections in all three of the storage regions were below the five-year average. The East region injected 37 Bcf (compared to the 5-year average of 58); the West injected 11 Bcf (compared to the 5-year averaged of 14); and the Producing region injected 14 Bcf (compared to the 5-year average of 16). In the Producing region, stocks increased 4 Bcf in salt cavern facilities and 10 Bcf in non-salt cavern facilities.

Temperatures during the storage report week were slightly warmer than both the 30-year normal and last year’s temperatures. Temperatures in the lower 48 States averaged 71 degrees, compared to 70.6 last year and the 30-year normal of 69.6. The warmest area of the country was the West South Central Census division (Arkansas, Louisiana, Oklahoma, and Texas), where temperatures averaged 80.1 degrees.